OPEC Sets 10% Increase

By Loren JenkinsBy Loren JenkinsDecember 17, 1980

Brushing aside political disputes among its members, the 13-nation Organization of Petroleum Exporting Countries today broke a four-month freeze and agreed to increase the price of oil by an average of 10 percent.

Each OPEC member still must determine its own price for oil within the new spectrum that will range from $32 to $41 for a 42-gallon barrel of oil. Each nation is expected to set new prices by Jan. 1.

Saudi Arabia, which accounts for 40 percent of total OPEC production, has already said that it will raise the price of its benchmark crude by $2, to $32. Other countries are expected to set their price for equivalent crude at $35 to $36.

"We are going to increase something like $3, which means 10 percent, at least for the next six months," Humberto Calderon Berti, Venezuela's minister of energy and mines and the outgoing OPEC president, told a news conference.

[A Washington Post staff projection, based on Department of Energy figures, indicates that the OPEC price rises would probably add four to five cents to the cost of a gallon of gasoline, if all of the increases are passed to the consumer.]

The relative moderation of the price increases, oil analysts at the conference said, was the result of weak market pressures stemming from an estimated 6 percent drop in Western consumption this year because of recessions and high reserve stocks.

Despite production losses of slightly less than 3 million barrels a day due to the Iranian-Iraqi war, stocks in the industrialized countries remain at about 5 billion barrels, relieving pressures that have led to OPEC increases.

Rushing through its semiannual price-fixing session in a record day and a half, the organization studiously avoided discussing any production drops such as those adopted at its last meeting in Vienna in September but later reversed by Saudi Arabia and Persian Gulf oil sheikdoms after the Iranian-Iraqi war broke out.

The new OPEC agreement, loose as it may be, was reached despite acrimonious agruments between Iran and Iraq -- two of the organization's leading members. Until this week, their war had paralyzed OPEC and forced it to cancel all of its previously scheduled meetings.

The gulf fighting, the worst crisis OPEC has faced in its 20-year history, has sharply reduced the two nations' prewar oil exports of 3.8 million barrels of oil a day.

More embarrassing to the organization is that it has resulted in the capture by Iraqi soldiers of Iran's 30-year-old oil minister, Mohammed Javad Tondguyan, who was represented at this week's meeting only by a life-sized photograph placed in the seat of Iran's chief delegate by his deputy, Hassan Sadat.

Given the war, the fact that the OPEC ministers could meet at all was hailed by the organization as proof of its basic strength. That they could actually agree on a new pricing accord, for all its basic elasticity, was viewed here as proof of OPEC's unshakable solidarity despite the current political turmoil between Iran and Iraq.

"I am very satisfied with the results of the conference," said OPEC President Calderon after the conference ended shortly after noon today. "We proved that OPEC was united and that the solidarity of its members was very good. No matter what happens, we have proved OPEC is permanent."

It was the desire by OPEC members, including Iran and Iraq, to prove that OPEC's viability was above question even more than their desire for agreement on new price hikes that was in fact the conference's main success, according to delegates. "The object of this meeting," said one analyst here, "was not so much pricing as proving that despite its current political upheavals, OPEC can and will survive."

It was a proposition that Iran did its best to challenge from the beginning when it insisted, in preparatory meetings, private discussions, closed sessions and plenary meetings, that the issue of its absent and imprisoned oil minister be taken up by the conference.

Despite being repeatedly overruled on this question, Iranian Deputy Oil Minister Sadat insisted on putting the question to the floor in today's final session. He called for a committee of oil ministers to visit Baghdad to check on Tondguyan's health. If the ministers would not go to Baghdad to take up the case, Sadat offered to turn himselft over to the Iraqis to take Tondguyan's place.

Neither proposal was acted upon by the conference delegates who listened to his speech in silence.

It was the Iranians who led the way in pushing for the higher increases, asking that the price for benchmark crude, now at $32 a barrel (except for Saudi Arabia), be raised to $36.

The Iranian position was sharply resisted by the conference's majority, which wanted the base ceiling for light crude to be set at $35 a barrel. In the end, the desire to produce a face-saving agreement led to the official adoption of the Iranian position, although most members producing similar crude said privately they would probably not raise their prices beyond the original $35 a barrel they advocated.

This would explain Calderon's reference to a $3 increase.

Sheik Ahmed Zaki Yamani, Saudi Arabia's oil minister who has traditionally acted as a moderating influence on prices because of his nation's control over 40 percent of OPEC's oil exports, was as eager as everyone else to preserve the symbol of unity.

Recognizing that this was hardly the time to push for his cherished scheme of a long-term pricing agreement setting quarterly increases fixed to Western inflation and growth rates, Yamani resignedly accepted the continuation of the loose pricing framework that has existed since OPEC's unified policy last broke down in 1979.

The final face-saving compromise reached today was that the pricing formula first agreed upon a year ago at OPEC's session in Caracas, Venezuela, was simply continued, with the base and ceiling prices raised by an estimated 10 percent to account for world inflation since that meeting.

Saudi Arabia agreed to raise the price of its benchmark oil (Arabian light 34 API) from $30 a barrel to $32 a barrel, which will be OPEC's new low. A ceiling of $41 a barrel was also agreed to for the lighter crudes and those closer to the Western marketplace. Much of this oil is produced by such so-called "price hawks" as Algeria, Libya and Nigeria. However, experts predicted they would not raise their prices, now pegged at $37 ceiling, beyond $40 because the current market would not bear it.